Exit Readiness Checklist for Search Fund CEOs

If any area scores below 3, prioritize it in your exit preparation timeline.

• Ensure financial statements are GAAP-compliant (or IFRS for international businesses)
• Engage an audit firm for at least the last 2-3 years of financial statements (reviewed statements at minimum)
• Prepare monthly financials with consistent, timely close processes (target: close within 15 days of month-end)
• Document all add-backs and adjustments clearly. Buyers will challenge aggressive add-backs
• Reconcile all balance sheet accounts and clean up any stale items
• Separate personal expenses and one-time items from recurring operations

• Analyze revenue by customer, product/service line, and geography
• Calculate and document customer retention/churn rates (trailing 12 and 24 months)
• Identify recurring vs. non-recurring revenue. Buyers pay higher multiples for recurring revenue
• Reduce customer concentration: no single customer should represent more than 15-20% of revenue
• Document the sales pipeline and backlog to demonstrate forward visibility
• Calculate net revenue retention (NRR) if applicable. NRR above 100% is a strong signal

• Review all expenses for optimization opportunities (not cost-cutting that harms the business)
• Renegotiate vendor contracts, leases, and insurance before exit (savings flow directly to EBITDA)
• Ensure compensation is at market rates. Overpaying or underpaying yourself creates adjustment issues
• Eliminate or document all related-party transactions
• Prepare a detailed adjusted EBITDA bridge with clear documentation for each adjustment

• Document the value creation journey: where the business was when you acquired it vs. where it is now
• Prepare a revenue bridge: how much growth came from price increases, new customers, existing customer expansion, and new products/services
• Quantify the total addressable market (TAM) and your current market share
• Identify and document 3-5 specific growth levers the next owner can pull:
  • - Geographic expansion opportunities
  • - New product or service lines
  • - Pricing optimization
  • - Sales and marketing investment
  • - Add-on acquisition targets
• Build a 3-year financial projection that supports the growth story (be realistic, not aspirational)
• Document competitive advantages and barriers to entry (what makes this business defensible)

• Build a leadership team that can run the business without you for 3-6 months
• Ensure key roles are filled: operations, finance, sales (at minimum)
• Implement retention plans for critical employees (stay bonuses, equity incentives, or transaction bonuses)
• Document succession plans for all key positions
• Create an org chart with clear roles, responsibilities, and reporting lines
• Ensure employment agreements are current and include non-compete/non-solicit clauses where appropriate
• Prepare brief bios for all senior team members (buyers will want to meet them)

• Conduct a "seller's due diligence" on your own company: review everything a buyer would review
• Ensure all business licenses, permits, and certifications are current
• Review and organize all material contracts. Identify any change-of-control provisions that require consent
• Resolve any pending or threatened litigation
• Confirm intellectual property ownership (trademarks, patents, domain names, software licenses)
• Ensure compliance with employment laws (employee classification, overtime, benefits)
• Review environmental compliance (if applicable to your industry)
• Clean up the corporate minute book and ensure all governance documents are in order
• Review the capitalization table and ensure all equity ownership is clearly documented

• Document all key business processes (SOPs) for critical operations
• Create or update an employee handbook
• Document vendor relationships: who are the critical suppliers and what are the terms?
• Map all technology systems: software, hardware, integrations, and license terms
• Document the customer onboarding and service delivery process
• Prepare a facilities overview: owned vs. leased, lease terms, condition, and capex needs

• Interview 3-5 investment bankers or M&A advisors. Evaluate them on:
  • - Industry expertise and relevant transaction experience
  • - Buyer relationships in your sector
  • - Team quality (who will actually work on your deal?)
  • - Process and timeline expectations
  • - Fee structure (retainer + success fee, minimum fee, tail period)
• Ask for references from recent sell-side clients (call them)
• Understand their valuation perspective: what multiple range do they think is achievable?
• Negotiate the engagement letter carefully. Key terms to watch:
  • - Success fee percentage (typically 2-5% for deals under $50M)
  • - Minimum fee
  • - Exclusivity period and termination rights
  • - Tail period (typically 12-24 months)
  • - Expense reimbursement
• Align on the target buyer universe: strategic buyers, private equity, family offices, or search funds

Standard Data Room Structure:

1. Corporate Documents - Articles of incorporation, bylaws, operating agreement, cap table, board minutes
2. Financial Information - 3 years of financial statements, tax returns, monthly reports, budget vs. actual, adjusted EBITDA schedule
3. Revenue & Customers - Customer list with revenue by customer, retention data, top customer contracts, pipeline report
4. Human Resources - Org chart, employee roster, compensation details, benefits summary, employment agreements, handbook
5. Legal - Material contracts, litigation history, IP portfolio, regulatory filings, insurance policies
6. Operations - Facility information, equipment list, technology systems, vendor contracts, SOPs
7. Growth Plan - Strategic plan, market analysis, competitive landscape, financial projections
8. Real Estate - Lease agreements, property appraisals, environmental reports
9. Insurance - All current policies, claims history
10. Tax - Federal and state returns (3 years), sales tax filings, any pending audits or disputes

Months 24-18: Foundation

• Complete the exit readiness self-assessment above
• Engage a tax advisor to plan the most tax-efficient exit structure
• Begin upgrading financial reporting to audit quality
• Start reducing customer concentration if above 20%
• Assess management team and begin filling gaps
• Address any deferred maintenance or capex needs

Months 18-12: Optimization

• Implement process improvements that impact EBITDA
• Renegotiate key vendor contracts and leases
• Build out the management team to reduce owner dependency
• Begin documenting SOPs and key processes
• Resolve any pending legal or compliance issues
• Consider engaging a Quality of Earnings firm proactively (sell-side QoE)
• Discuss exit timeline and expectations with your board and investors

Months 12-6: Preparation

• Interview and select an investment banker or M&A advisor
• Prepare the Confidential Information Memorandum (CIM) with your advisor
• Build and populate the virtual data room
• Finalize the growth story and financial projections
• Implement retention agreements for key employees
• Identify and brief potential buyer targets with your banker

Months 6-3: Go to Market

• Launch the sale process (broad auction, targeted process, or limited outreach)
• Manage initial buyer inquiries and NDAs
• Conduct management presentations with qualified buyers
• Receive and evaluate indications of interest (IOIs)
• Select buyers to advance to the LOI stage
• Maintain business performance (this is critical and harder than it sounds)

Months 3-0: Execution

• Negotiate and sign the LOI with the preferred buyer
• Support buyer due diligence (respond to requests within 24-48 hours)
• Negotiate the definitive purchase agreement
• Manage the working capital adjustment and closing mechanics
• Plan the employee and customer communication for closing day
• Close the transaction and celebrate

• Revenue growth rate - Consistent, organic growth (10-20%+ for premium multiples)
• EBITDA and EBITDA margin - Margins trending up signal operational excellence
• Customer retention / churn - High retention = predictable revenue
• Customer concentration - No single customer above 15-20% of revenue
• Revenue quality - Recurring > repeat > project-based
• Management depth - Business runs without the owner
• Capital efficiency - Low capex requirements, strong free cash flow conversion
• Market position - Defensible niche, competitive advantages